THE DAY AHEAD: IBM, Apple and the Fed

COMMENTARY--It took just a few minutes for IBM to silence its doubters and give investors a reason to remain bullish.

"Based on our results and everything we know today about the coming year, we remain on track for your consensus earnings-per-share estimate for 2001, which is consistent with our long-term business model," said CFO John Joyce on a conference call with analysts.

You could sweat about Big Blue's individual businesses, but the whole importance of IBM's first quarter was summed up with that quote. IBM met estimates with earnings of 98 cents a share on sales of $21 billion. For the year, analysts are expecting IBM to report earnings of $4.87 a share on sales of $93.85 billion. IBM made investors happy--twice.

IBM's quarterly results were solid, and the company acknowledged economic problems, but remained confident. IBM, which is just about the only tech company gaining ground, posted sales growth of 9 percent in the quarter, its best performance since the second quarter of 1999.

Now its time for some backpedaling. A lot of analysts and even yours truly expected Big Blue to lower estimates for 2001. It just made sense given the economic conditions and information technology spending slowdown.

Oh, well time to eat some crow.

"We continue to believe the company's previous full-year guidance for 7 to 9 percent top-line growth is unrealistic," said Prudential analyst Kimberly Alexy, in her earnings preview. "We believe it will be extremely difficult for IBM to outrun this slowdown."

IBM is sticking to its story and there's no reason to doubt them now.

"We believe that IBM will cautiously reaffirm EPS guidance for the upcoming Q2 (consensus is $1.17), but not provide concrete revenue or EPS (earnings per share) targets for the remainder of the year," said Bernstein analyst Toni Sacconaghi in a research note.

IBM's assessment that current estimates are just peachy sounded pretty concrete to me.

"I don't see how a betting man could not conclude that IBM won't either issue a profit warning or lower estimates when it reports earnings in April," said this now-humbled columnist way back in March.

Win some, lose some.

What's next for Apple?
Apple Computer (Nasdaq: AAPL) shows how a company can regain its footing even in a tough economy as long as it keeps cooking up cool products.

By changing a few colors on its iMac (Blue Dalmation is a big hit), offering the Titanium PowerBook G4, developing neat software such as its iDVD application and launching a highly anticipated operating system, Apple has resurfaced in a big way.

Apple reported a fiscal second-quarter profit of 11 cents a share, a dime better than estimates. Revenue of $1.43 billion also topped expectations.

On a conference call with analysts, CFO Fred Anderson said the company was "well ahead of schedule" when it came to hitting its goal of carrying four weeks of inventory. Meanwhile, Apple plans on serving up more new products.

The only glitch is that Anderson projected Apple to have fiscal 2001 sales of $5.6 billion to $5.8 billion, slightly lower than current estimates. But Wall Street wasn't complaining--Apple's conference call barely lasted 30 minutes.

As for Wall Street's reaction, expect the usual. Apple is a niche player and can't compete on a big scale. There's no future, and estimates are coming down. You've seen the reports a few hundred times by now.

But that's not so bad. Apple is on solid financial footing and has a pretty profitable business selling to its followers. Apple has also proven it can buck the PC downturn. Besides, given Apple's earnings volatility, you could probably make a nice living just riding shares up and down over and over.

Putting the Fed in perspective
Federal Reserve Chairman Alan Greenspan sure jumpstarted the markets with his surprise half-point interest rate cut. Wednesday was the party; Thursday is a time for perspective.

If Big Al could buy up the excess inventory of chips and networking gear on the market, I'd be much more enthusiastic. But these interest rate cuts take time to kick in. It's not like Uncle Al fixed the economy overnight.

The tech sector still has issues to work through, and a bunch of companies indicating that their business has merely stabilized doesn't indicate that the worst is over.

One last point to ponder: When Greenspan's serial interest rate cuts begin to work, it's likely to boost inflationary pressure and just force the Fed to hike rates again. The thought is a little ahead of its time, but worth a few seconds of reflection. TDAIN
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